Xerox Company Stock Suit Survives First
Challenge

April 20, 2007 (PLANSPONSOR.COM) - Xerox Corp.
employees suing the company over its handling of their 401(k)
investments in shares of company stock fell short of proving
their allegations of a breach of fiduciary
responsibility.

But U.S. District JudgeAlvin W. Thompson of the U.S. District Court for
the District of Connecticut told lawyers for the
plaintiffs they could refile their lawsuit against Xerox,
its present and former directors and officers, and
members of various committees that administered the two
Xerox 401(k) plans.

Thompson accepted an argument by Xerox that the
suit failed to explain how each defendant was a fiduciary
and how each purportedly breached his or her fiduciary
duties. The court said the new lawsuit needed to fix that
problem.

The employees alleged in the lawsuit that during
the class period running from May 12, 1997, to Nov. 15,
2002, the defendants breached their Employee Retirement
Income Security Act (ERISA) fiduciary duties by retaining
the Xerox Stock Fund as an investment option when it was
imprudent because Xerox had purportedly engaged in
accounting fraud that overstated the stock’s
value.

Among other things, the suit charged that the
defendants breached their duties under ERISA by not
giving employees investing in the Xerox Stock Fund
complete and accurate information about Xerox. According
to the court, the defendants argued that the employees
were attempting to impose on them a duty to provide
investment advice.

“[A] duty to inform participants is not the
same as a duty to provide investment advice,”
Thompson declared in his ruling.

Also, the defendants charged they did not exercise
authority or control with respect to investment in the
Xerox Stock Fund, so they were not acting as fiduciaries,
because the decision to invest in the fund was made by
the participants themselves.

But, according to Thompson, participants could not
have exercised control within the meaning of ERISA Section
404(c) unless the plan fiduciaries provided them with
complete and accurate information.

The employees alleged that Xerox had made false
public statements and filed false Securities and
Exchange Commission (SEC) filings that were later
disseminated to employees.

While it is true that the preparation and filing of
documents with the SEC and making statements in press
releases is not a fiduciary act in and of itself,
“that fact does not mean that statements in those
documents cannot become fiduciary representations if they
are disseminated to Plan participants and
beneficiaries,” Thompson pointed out.